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IAS 37 & IAS 10: Provisions, Contingent assets, Contingent Liabilities…

- - - - A possible asset that arises from :pencil2: past events, and
      - Whose existence will be confirmed only by the occurrence or non-occurrence
      - of one or more uncertain future events
      - not wholly within the control of the entity
      - Recognition If income is certain
        
        When the realisation of income/inflow of economic benefits from a contingent asset Is virtually certain
        
        The asset and the related income is recognised.
      - :star: Contingent Assets are never Recognized or Represented in the financial statements however it will be disclosed in the notes to the financial statements
        
        Disclosure for each class
        
        Description of nature of contingent asset
        
        Estimate of financial effect (Measurement)
        
        If some information is not available - disclose the fact
    - - A possible obligation depending on whether some uncertain future event occurs
      - A present obligation but payment is not probable or the amount cannot be measured reliably
      - :star:Contingent Liabilities are never Recognized or Represented in the financial statements however it will be disclosed in the notes to the financial statements
        
        Because possible obligated means it is yet be confirmed whether the entity actually has a present obligation that could lead to an outflow of resources embodying economic benefits
        
        Or Present obligation that do not meet the recognition criteria
        
        Disclosure for each class
        
        Estimate of financial effect
        
        Uncertainties involved
        
        Description of contingent liability
        
        If provision and contingent liability arise from same set of circumstances - disclose as such to show link
        
        If information not available - disclose fact.
  - - - Legislation
      - Operation of law
      - A contract
    - - A constructive obligation derives from company actions like
        
        Established practice
        
        Specific current statement
        
        Published policies
      - Company indicated to other parties its responsibility
      - Arises if past practice creates a valid expectation on the part of a third party
        
        E.g) A retail store that has a long-standing policy of allowing customers to return merchandise within 30 days*
      - Created a valid expectation for discharging those responsibilities
- - - - The cost of fulfilling it
      - Any compensation or penalty arising from failure to fulfil it
- - - - Legal
      - Constructive
  - - - Use the best estimate of the expenditure required to settle the obligation at reporting period. This takes into account the following:
        
        Experience of similar transactions
        
        Reports from independent experts
        
        Judgement of management
        
        Evidence provided after reporting period
    - - It excludes VAT
      - Make sure you have accounted for associated risks and uncertainties
      - The amount is before tax
      - You have taken future events into account
        
        Anticipated technological advances
        
        Future Legislation
        
        Expected cost reductions
  - - - The opening and closing of carrying amount. Also include any increases and decreases
      - Any amount used and unused in the year
      - Any significant uncertainties about the amount or timing of the expense
      - Any amounts reverse so unused provisions
      - The expected timing of any outflow of economic benefits
      - *If some information is not available, disclose the facts
      - A description of provision
- - - - Present obligation as a result of an obligating event
        
        No
        
        Possible obligation?
        
        No (future obligation)
        
        Yes
        
        Yes
        
        Probable outflow
        
        Yes
        
        Reliable Estimate
        
        Yes
        
        1 more item...
        
        No (rare)
        
        1 more item...
        
        No
        
        Possible outflow
        
        No (remote)
        
        1 more item...
        
        Yes
        
        1 more item...
- - - - Provide evidence of conditions that existed at year end
        
        Recognise the event and adjust the line item in the financial statements
    - - Indicative of conditions that arose after year-end
        
        Do not recognise in the financial statements however disclose in the notes to the financial statements if the item is material
        
        The financial effect or estimate (before and after tax)
        
        Or if no estimate can be calculated, then a statement should be present to state that no estimate could be made
        
        The nature of the event
      - There was no evidence at the end of the reporting period indicating that such an event would occur
      - Dividends
        
        This should be disclosed in the note to the financial statements2
        
        Dividends declared after year end But before the financial statements are authorised for issue
        
        Non-adjusting events
        
        This is because no current obligation to pay the dividend existed at the end of the reporting period